How To Give Seniors Better Coverage Than Medicare

February 15, 2000

Seniors need insurance coverage for prescription drugs because Medicare fails to cover them. This shows that despite its political popularity Medicare is actually a lousy health insurance plan, says economist John C. Goodman, president of the National Center for Policy Analysis.

Medicare violates almost all the principles of sound insurance, and it would probably be illegal for private insurers to sell a similar plan in most states.

It pays too many small bills the elderly could easily afford on their own, while leaving them exposed to large potential out-of-pocket expenses, including durg costs.

Consequently, about 360,000 Medicare beneficiaries each year spend more than $5,000 out-of-pocket on services theoretically covered by Medicare.

Yet drugs are increasingly important to health care -- for instance, a 1996 National Bureau of Economic Research study shows that each dollar spent on prescription drugs is associated with a four dollar decrease in hospital expenses. And incomplete drug coverage encourages doctors and their patients to use surgery or hospital and doctor therapies, instead of cheaper drug therapies.

About two-thirds of Medicare beneficiaries buy private, supplemental insurance (36 percent), or have coverage from a former employer (33 percent). Most "Medigap" policies don't cover prescription medication, and those that do often provide incomplete coverage. The poorest seniors often have the best drug coverage because they qualify for Medicaid, the federal-state health program for the poor.

The elderly should be allowed to combine the average amount Medicare spends with the money they spend on private insurance and pay one premium into a comprehensive private plan. According to an NCPA study by Milliman & Robertson, Inc., this could buy health insurance coverage similar to what federal employees have.

Source: John C. Goodman (president, National Center for Policy Analysis), ""RX FOR MEDICARE: Government's dollars could be better spent on private health plans that cover drugs," San Francisco Chronicle, February 13, 2000.